Out-Law Analysis 3 min. read
03 Aug 2021, 12:37 pm
Setting clear and unambiguous targets towards decarbonisation will give infrastructure owners and investors the starting point they need to drive real change.
Cost transparency, technological solutions and better capture and sharing of data will be essential if firms are to properly assess their progress. Government, regulators, clients and the supply chain will also have parts to play in delivering the regulatory change and new procurement and service provision models that will enable the construction industry to achieve its decarbonisation goals.
Successfully decarbonising the infrastructure sector will require buy-in across the project life cycle. It is important that decarbonisation is a central theme of owner and investor requirements to drive demand at all levels, backed by clear and unambiguous targets.
In the automotive sector, Toyota recently announced targets that its suppliers need to achieve in order to be a Toyota supplier. Talking the board through scenarios that helped understanding of targets for decarbonisation was essential for another organisation in setting ambitious and bold targets for decarbonisation, aiming for net zero emissions by 2040. The process of scenario building using different educational tools helped build confidence and deliver clear targets.
The construction industry is capable of creative and innovative solutions which need to be harnessed if decarbonisation is to be achieved. Once infrastructure owners and investors clearly set out their targets and requirements, the construction sector will be able to apply its creative innovation on a level playing field.
Given the traditionally low margins in the construction industry, price is still a significant, if not the biggest, driver of decision-making. There are many examples of projects having the best of intentions up until financial close, where environmental, social and governance (ESG) measures are suddenly negotiated out.
The cost of sustainable green investment has historically been around 10-15% higher than ‘traditional’ investment, but this gap has already halved and will continue to shrink. Some contractors are now offering two prices for projects: one for the ‘clean’ version, based on net zero emissions; and another for the ‘dirty’ version. Future legislative intervention such as carbon pricing and ‘green’ taxes will also drive up the cost of failure to decarbonise.
Having complete transparency on costs – both the cost of decarbonisation to the business and the cost associated with not achieving targets – will be essential if firms are to capture the true picture.
The use of ‘digital twins’ can help to quantify the cost benefit of the risks associated with decarbonisation. Creating a digital twin of a project at an early stage can help to identify various scenarios and allow parties to see the best options for decarbonisation.
Improvement without measurement is virtually impossible. Reliable data, measurement and verification will be required to reduce carbon emissions. However, data is often difficult to capture, and assumptions are often made, complicating comparisons with other projects.
Data sharing is a big challenge across the infrastructure sector in general. Data privacy in relation to designing, constructing and operating infrastructure is a significant issue. Hierarchical supply chains across the industry, from prefabrication and automation to robotics, make data capture beyond the major contractors a challenge. However, there is no getting away from the fact that collaborative working will be essential to capturing, verifying and comparing data.
Common data sets are urgently needed. Supply chains are largely shared across the construction industry, and common data sets for carbon should be established. Larger construction companies and manufacturers could provide grants and funding to smaller businesses to enable them to prepare environmental product declarations (EPDs) for their carbon data, with the ultimate goal of pulling together a materials blockchain.
Building alliances across the construction sector while maintaining compliance with competition law will provide a framework for the necessary collaboration. In Australia, the World Wildlife Fund (WWF) has set up the Materials and Embodied Carbon Leaders Alliance (MECLA) to support industry-wide collaboration, demonstrate demand and deliver a best practice ‘evaluation’ framework.
Decarbonisation needs both regulation and incentives to drive the market. Intervention by governments to help build capability at all levels within the market is essential.
Successful decarbonisation will hinge on transformation of the whole value chain. Procurement models need to be modernised to encourage the construction industry to propose materials and processes that support decarbonisation and facilitate greater innovation, digitalisation and industrialisation.
As we have seen in other sectors, ‘construction as a service’ (CASS) could be transformational for the industry, helping to drive circularity and reduce one-time use of natural resources. As an example, Phillips provides lighting by the hour at Schiphol Airport and Mitsubishi provides elevators per floor lift. This ensures responsibility for overall product performance remains with the original equipment manufacturer (OEM), and has the benefit of providing the OEM with reliable data about product performance.
In another example, Rolls Royce changed its business model to a ‘power by the hour’ performance-based contracting model, reusing over 90% of used engine parts as a result. Adaptation of business models will be important in driving decarbonisation.
13 Jul 2021
13 Jul 2021